1031 Exchange
THE TAX DEFERRED EXCHANGE – AN INVESTOR’S SAVING GRACE
July 3rd, 2008 categories: 1031 Exchange, Buyer Strategies, Seller Strategies
[NOTE: Drawing on several decades of experience as a real estate attorney, John Pitrelli contributes articles of interest for home buyers and home sellers. To view John's other posts please click here.]
A 1031 or tax deferred exchange is a method by which a property owner trades one investment property for another property, without having to pay any federal income taxes as a result of the transaction.
To take advantage of 1031 you must own the property for investment or business purposes. Typically residential rental property or commercial property will meet this requirement. The property does not have to be improved (raw land can qualify). However, certain individuals or companies will not qualify if they are considered by IRS to be “dealers”. For example, if you are a builder and own the property strictly for resale, such as a builder’s inventory of new homes, you will be considered a dealer. Also, if you buy property with the intention of reselling it quickly (”flipping” the property) you may likewise be treated as a dealer and ineligible for a 1031 tax deferred exchange. If you own your property as a second home or use it personally for more than two weeks per year, you will be unable to utilize a 1031 exchange for that property. Read the rest of this entry »
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